In my recent article in Reactions entitled Why Long-term NFIP Reform is a Must, I looked back at the flood events of 2018 through the lens of the need to reform the National Flood Insurance Program (NFIP). I made the argument that the NFIP is not effectively covering communities at risk or supporting the development of a private market that support that same goal.
Looking at Hurricane Florence, its impacts exemplify the type of event from which our communities need to recover from by leveraging the NFIP and a more robust private market. Both North Carolina and South Carolina each broke records for the amount of rainfall caused by a tropical cyclone. While the flooding due to storm surge was significant in areas such as New Bern, the majority of the flood damage was driven by that record rainfall in the inland areas.
The areas most impacted had the lowest take-up rates for flood insurance – the take-up rate for NFIP policies is less than two percent in the inland counties of North Carolina and South Carolina, while take-up rates in most coastal counties generally range from 10 to 25 percent. As a result, RMS analysis found that Florence caused US$3 billion to US$6 billion in uninsured losses, or about 4-5 times the losses expected to be incurred by the NFIP.
As we move full steam in to 2019, it is worth remembering that some good progress was made during 2018 with regards to advancing the private flood insurance market in the U.S. – even though Congress struggled with reform of the National Flood Insurance Program (NFIP).
Here’s five takeaway points from the past year:
1. Extending the Extension: The NFIP saw numerous extensions and a few short lapses. Just before the end of the year, Congress reauthorized the NFIP until May 31, 2019 right before the government shutdown commenced on December 22, 2018. But decisions by FEMA during the last week of the year brought uncertainty to the housing and insurance industry as it dealt with changing guidelines on whether policies could be sold or renewed during the shutdown. Ultimately, the NFIP is still operating, but the back and forth of 2018 did not bolster confidence in the stability of the program and left many asking … will 2019 be the breakthrough year?
2. FEMA Boosts the Private Flood Market: Although Congress struggled to act on the NFIP, FEMA did, with technical changes that came into force on October 1, 2018, to attract new private carriers and help existing carriers who participate in the NFIP “Write Your Own” (WYO) program.
First – removing a “non-compete” clause for carriers operating within WYO, now allows WYO carriers to offer their own private flood coverage as well as NFIP policies, with the condition that these businesses are kept separate. Second – policyholders can now cancel their NFIP policy mid-term, before its expiration date when a policyholder has obtained a duplicate policy. In combination, these steps removed hurdles that were hindering carriers from offering new flood products and making it difficult for consumers to purchase those products from the private market.
With positive changes under way to improve both public and private carrier participation across the U.S. flood market, many are looking to seize the opportunity that the U.S. flood market presents. Insurers, reinsurers, and the capital markets are exploring this opportunity which, in turn, has created a thirst for knowledge. I had the opportunity to see this first-hand when I was invited by Trading Risk magazine to take part in a panel discussion at the Trading Risk ILS: Reloaded and Resurgent event in New York last month. Sofia Geraghty from Trading Risk served as our moderator, and Joanna Syroka, Director of New Markets at Fermat Capital Management, and Ian Hanson, Vice President of Willis Re, were also on the panel.
One point that the audience wanted to understand was the level of demand to take on flood risk from an investor’s viewpoint, and also whether U.S. flood risk can be a portfolio diversifier. From the insurance-linked securities (ILS) side, Joanna confirmed the demand is there, but as with any peril, the ILS market needs to be able to clearly understand and define the risk to get comfortable enough to invest.
After a major hurricane or a similar natural disaster, RMS routinely sends modelers and engineers into the affected region to survey the destruction. This field reconnaissance in the immediate aftermath of an event serves several purposes:
Provides an indication of the most prevalent type of damage (e.g. shingle loss, structural failures, flooded contents, etc.)
Provides an indication of the general frequency (e.g. one in five homes have shingle loss) and severity (e.g. 20 percent of shingles missing) of the damage.
Helps to understand the full geographic extent of the event including the subperils (e.g. wind, surge, inland flood, etc.). As part of this effort, RMS will measure flood depths (based on visible watermarks) that help provide a sanity check for the surge and flood modelers developing the event footprints.
Talking with locals (both homeowners and businesses) provides a better understanding of the severity of the storm and the conditions immediately after an event that may have already been cleaned up before our team arrived.
Of course, RMS is always concerned about the safety of its personnel and waits until it is safe to send anyone to the disaster areas. We also have to make sure that we can travel to the different areas affected by the disaster without too much difficulty.
Florence’s much anticipated landfall occurred at 11:15 UTC (7.15 a.m. local time) today, Friday, September 14, near Wrightsville Beach, North Carolina, as a Category 1 hurricane. Florence remains just within the Category 1 hurricane classification on Saffir-Simpson Hurricane Wind Scale (SSHWS); as of the 18:00 UTC National Hurricane Center (NHC) advisory today, maximum sustained winds were 75 miles per hour (120 kilometers per hour). Previous observations showed that at Cape Lookout there were sustained winds of 83 miles per hour (133 kilometers per hour) and gusts of 106 miles per hour (170 kilometers per hour). Florence is now moving slowly toward the west at near five miles per hour (7 kilometers per hour).
Over the coming 36 hours, Florence is expected to meander into northern South Carolina and then progress further inland across the western Carolinas and into the Appalachian Mountains through the early part of next week.
The expectation that surge and inland flooding, rather than wind, would be the primary hazards associated with Florence was quickly realised as the storm approached the Carolinas coastline yesterday.
Excessive rainfall and dangerous storm surge present the greatest threat over the next few days. The potential for heavy rainfall has extended to the south and west given the change in projected track over the last 48 hours. Projections of over 15 inches (380 millimeters) of rain now cover much of southern North Carolina and northeast South Carolina — much of North Carolina is expected to receive in excess of six inches (152 millimeters) of rain.
Over the last 24 hours, the structure and forecast track of Hurricane Florence has evolved significantly as the storm begins to impact the Carolinas, but the material wind, storm surge and flood threat it poses to the Southeastern and Mid-Atlantic U.S. remains.
As of 1200 UTC yesterday (September 12), Florence’s wind field was large and powerful as the storm inched closer to the U.S. coast through favorable environmental conditions. According to RMS HWind analyses, which utilize more than 30 public and private observational data sources to generate objective, ground-truth-based tropical cyclone wind field analytics, maximum 1-minute sustained winds were estimated to be 124 miles per hour (199 kilometers per hour) (Figure 1 below), placing the storm squarely in the Category 3 range on the Saffir Simpson Wind Scale.
In addition, the Integrated Kinetic Energy (IKE), an indicator of tropical cyclone strength and damage potential, was estimated to be 104 Terajoules (TJ), putting it on par with historical events like Frances (2004), Gustav (2008), and Isabel (2003).
No hurricane landfall forecast is simple. But looking back at the forecast tracks for Hurricane Florence from the National Hurricane Center (NHC) and the ensemble members of the leading global forecast models a couple of days ago, what stood out was how relatively straightforward they were. Florence was anticipated to make a steady, assured progress directly towards the Carolinas, make landfall, and move directly inland.
In a somewhat remarkable turn of events that few, if any, models predicted 48 hours ago, Florence is now expected to stall over, or very near to, the Carolina coastline.
The huge shift in the forecast guidance is the anticipated result of a reduction in Florence’s steering flow due to two competing areas of high pressure. The hurricane is currently being steered across the southwestern Atlantic Ocean towards the southeastern U.S. around the southeastern periphery of a mid-level ridge centered northeast of Bermuda. As the system approaches land, it will come under increasing influence from a competing mid-level ridge that is forecast to begin building over the east-central United States later today. The net result of these competing steering flows will see Florence slow, meander, or even become stationary for possibly 48 hours before the system moves ashore.
This possibility could bring prolonged hurricane-force winds and storm surge throughout Saturday and Sunday, to coastal areas along North and South Carolina, and significant inland flooding to whole region.
The forecasts for Hurricane Florence have been unusually consistent this far in advance of an anticipated landfall, projecting its path to cross the coast of the Carolinas at major hurricane intensity. For some perspective, if we look at the historical hurricane record since 1850, we find major hurricane landfalls are quite rare along this part of the U.S. Atlantic coastline:
RMS Reconstructed Loss values are based on wind and storm surge damage to present-day exposure, and not on trending forward historical losses
Over the past 167 years, there have been just nine major hurricanes that made landfall along the coast of North and South Carolina. So, on average we can expect one major landfall along this 490-mile stretch of coastline every eighteen and a half years. Certainly, a rare event. Only three of these storms — Hazel, Gracie, and Hugo — were Category 4 (on the Saffir-Simpson Hurricane Wind Scale) at landfall. There has never been a Category 5 landfall north of Florida.
It seems somehow fitting that a storm underwent rapid intensification today, the peak of the North Atlantic hurricane season. Indeed, as forecast, Florence grew impressively from a tropical storm to a powerful Category 4 major hurricane — as of 1600 UTC on Monday, September 10, — with maximum sustained winds near 130 miles per hour (195 kilometers per hour), according to data from a recent National Oceanographic and Atmospheric Administration (NOAA) reconnaissance aircraft mission into the storm.
A ridge of high pressure is guiding Florence on a west-northwest to northwest path across the southeastern Atlantic Ocean between Bermuda and the Bahamas towards the southeastern U.S. Swells generated by Florence are already affecting Bermuda, with warnings of life-threatening surf and rip current conditions.
With each advisory, the chances of the storm missing the U.S. is rapidly narrowing. Most global models call for a landfall over the Carolinas as a major hurricane. Although the latest National Hurricane Center (NHC) “cone of uncertainty” includes the possibility of landfall between South Carolina and southern Virginia, there has been a strong, consistent guidance that a landfall over North Carolina is the most likely scenario. RMS HWind now shows that the two cities with the highest probability of greatest impact are both in North Carolina: Jacksonville and Wilmington.